I entered the due diligence period, and I have until December 31st to back out. This is my first business purchase, and I want to make sure I am making a good decision. Here is some information over the business. Established in 2013. Over 300 Google reviews (4.5 stars). In 2023, approx $6m in revenue, $1.5m in A/R. currently showing negative $100K loss ( $1.4m net if all A/R is collected). The business has 14 employees.
The purchase price is $1m + $75K from A/R.
The owner says he is selling because he wants to focus on real estate and will sign 3 year non-compete.
A way I can see improving the business is by trimming the unnecessary expenses (currently $270K per month) and focusing on keeping A/R account low.
Does anyone have any experience or advice in purchasing a business for the first time, or in roofing/ construction? What are the most important questions I need to ask the current owner? Are there any red flags I should be aware of?
This is a huge decision and I am looking for any advice or guidance!
The valuation of the business has definitely brought to questioning since it’s marking a cash loss this year. I actually like the idea of the seller having some skin in the game as well. I think he is open to doing that. Maybe 100-200K in seller financing.
From the AR account, 900K is in the 1-30 days old. The rest is 30+. I agree, I cant value the entire AR dollar for dollar.
Right, I don’t know how much (if any) op expenses I can trim while it still running. I don’t know if they are wasting money on anything yet. I plan on getting a detailed picture of each expense. I know the bulk of it is wages (135k), and marketing (50K).
Thats also a good question, if it’s showing negative EBITDA, how can value be determined? They are still generating $6m in 2023.